2019 & 2020-COH - DWS Financial Statements and Supplementary Information With Independent Auditor's Report

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County of Hawaii Department of Water Supply (A component unit of the County of Hawaii, State of Hawaii) NOTES TO FINANCIAL STATEMENTS June 30, 2020 and 2019 NOTE C - DEPOSITS AND INVESTMENTS At June 30, 2020 and 2019, the carrying amount of deposits (cash, time certificates of deposit, and money market funds) were $42,551,340 and $51,004,073, respectively, with corresponding bank balances of $43,261,291 and $52,005,269, respectively. These amounts were fully insured or collateralized with securities held by the County's agent in the County's name. The Hawaii Revised Statutes (HRS) authorizes the County Director of Finance to invest Department moneys that are in excess of the amounts necessary for meeting immediate requirements. The primary objective of the County's investment policy is to safeguard the principal. The secondary objective is to meet the liquidity needs of the Department. The third objective is to return an acceptable yield. In accordance with the HRS, the County's investment policy permits investments in obligations of or guaranteed by the U.S. government, obligations of the State of Hawaii, federally insured savings and checking accounts, time certificates of deposit, and repurchase agreements with federally insured financial institutions. Investments in time certificates of deposits totaled $22,000,000 and $30,000,000 at June 30, 2020 and 2019, respectively. Custodial Credit Risk - Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the Department will not be able to recover deposits or will not be able to recover collateral securities that are in possession of an outside party. The Department's policy requires deposits to be maintained at financial institutions that are members of the Federal Deposit Insurance Corporation and for deposits in excess of insured amounts to be collateralized with securities in accordance with the HRS. Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, the Department will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Department's policy provides a list of authorized counterparties as well as minimum requirements that counterparties must demonstrate in order to be utilized by the Department. Interest Rate Risk - Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Department manages its exposure to interest rate risk is by purchasing a combination of short-term and mid-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or nearing maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The Department monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. Credit Risk and Concentration of Credit Risk - Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The Department's policy limits investment options to those authorized in the HRS and requires the diversification of assets as to issuer. 24